Exclusivefocus Spring 2013 - National Association of Professional ...

will be increased if there are more than
two paid claims reported during the prior
three policy periods. Hence, Allstate
agents who experience three, four or five
E&O claims could see their deductibles
rise to $2,000, $3,000 or $4,000 respectively.
The Expanded Markets deductible
is also increased for multiple claims.
CalSurance E&O Facts:
• Coverage is provided for any act, error or omission you become
liable for in rendering or failing to render professional services in
your profession as an insurance agent. The policy has exclusions,
including dishonest, fraudulent, criminal or malicious acts.
• The policy covers the agent, and employees of the agent, including
licensed and unlicensed staff.
• Coverage automatically ceases on the date the EA Agreement
terminates. On that date, the automatic one-year extended reporting
period begins.
• Agents may purchase an optional five-year or unlimited (lifetime)
extended reporting period for 200% or 500% of the last annual premium.
The extended coverage must be purchased within 60 days of
contract termination date.
• If a terminated agent submits a written request for a mid-term
cancellation and a short rate refund of premium, the one-year automatic
extended reporting period is reduced to 90 days.
Ignorance is no excuse anymore
In order to avoid potential E&O claims,
it is essential that agents and their staff be
fully familiar with applicable MMGs and
binding authority. Review the MMGs
frequently to stay abreast of changes, and
be sure to seek underwriting approval prior
to endorsing an ineligible risk; then do
your best to document any details relating
to the exception.
Agents must be knowledgeable about
the products they are selling. This is especially
true of new products, such as
House & Home, which presents a multitude
of potential E&O traps for unsuspecting
agents. It is crucial that agents
understand this product so they can fully
explain the coverage limitations of the
policy to the customer, especially when
replacing an existing policy that has more
comprehensive coverage. It will also be
important to document those conversations
with the customer. In our view,
policies like House & Home present a
greater potential for E&O claims than
traditional homeowner policies. Don’t let
the customer scream, “But my agent told
me I was covered.” As always, make sure
you cover the bases with the customer
and document, document, document.
Equally as important is the obligation
for agents and staff to submit complete
and accurate applications, a task inherently
more complex than ever before.
The new House & Home policy application
includes information about the
customer’s automobile ownership, auto
insurance policies, driving record, roof
geometry, construction materials, and
more. Above all, agents and staff must
be fully aware of the consequences resulting
from intentional falsification of
information in order to obtain a better
rate or better coverage. If your staff is
working on commission basis, there may
be a temptation for them to “cheat” in
order to make more money. At a minimum,
agency owners should spot check
staff applications and contact customers
to verify information if something looks
awry. With good oversight of your employees,
you will have fewer E&O claims
and you’ll reduce or eliminate any unethical
conduct by your employees.
“
“All agency
owners should take
proactive steps to
ensure that they
and their employees
fully understand the
MMG guidelines
and binding
authority.”
“
Agents who have not been diligent
in adhering to MMGs in the past also
face another dilemma – how to mitigate
exposures that still remain in their book
of business from previous underwriting
transgressions. As an example, the
agent who wrote and told us about the
ineligible vehicle that her staff added to
a policy suddenly realized that there were
probably many more “claims waiting to
happen” within her book of business.
When she tried to get a list of policies
that had ineligible vehicles insured, Allstate
was unable to provide her with an
accurate accounting, making her efforts
to fix the problems much more difficult.
Worse yet, errors made on policies
outside your own book of business are
virtually impossible to find. This is a big
problem. And with the increased expectation
for agents to provide service to orphaned
policyholders, the agent’s E&O
exposure escalates significantly.
So Now What
Once identified, how are past errors
corrected Obviously, Allstate has no
incentive to “clean up” its book of business
because they actually benefit from
leaving things the way they are. First,
turning over claims to CalSurance saves
time and money. Once a claim is deemed
to be an E&O, they have little more to
do with it, saving additional claims handling.
Then, by not identifying problems
that need correcting, they can continue
to renew the affected policies for years
on end – collecting premiums on risks
for which they will never pay a loss. It’s
like free money. Last, they save the time
and expense it would take to identify the
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